HOMEOWNERS with secure jobs and no immediate plans to move will often watch mortgage rates anyway, just in case they have the opportunity to refinance their loans. But few of them will regularly bother to check housing sales or foreclosures, which could also affect their ability to refinance.
The market downturn has greatly reduced home values in many parts of the country, leaving homeowners with significantly less equity in their properties.
If a borrower’s home equity falls below 20 percent, he or she must buy private mortgage insurance for a new mortgage, which adds to the loan cost, at least until the equity reaches the level where the insurance is no longer needed. So, depending on when a home was bought, refinancing now may not be a viable option.
“Compared to a year ago, many more people are calling me now and I just can’t do anything for them,” said Tom Vanderwell, a loan officer with a large regional bank, about homeowners looking to refinance.
Those seeking government-insured loans, like those through the Federal Housing Administration, will face similar insurance premium costs.
Meanwhile, those wanting a second mortgage, or home equity credit lines, and even people who already have them, can also run aground if they near the 20 percent equity threshold. This is known as the 80 percent loan-to-value ratio, or L.T.V. for short.
If a borrower’s first and second mortgages would reach a combined loan-to-value ratio of 85 percent, most lenders would reject the application for a second mortgage, Mr. Vanderwell said. And if a borrower’s home equity shrank to the point where his equity credit line neared that level, a lender might, as they have in recent years, stop him from taking out more money.
In the New York City area in March, average resale prices of homes rose by 3.4 percent compared with a year ago, according to a report last month by the National Association of Realtors. Nationally, prices rose by 0.6 percent, the report indicated. Some economists expressed concern that those increases could end with the expiration of the federal housing tax credit for home buyers on April 30.
There is no precise way to determine one’s home value, aside from applying for a loan and paying for an appraisal. But there are some tools that borrowers can use to obtain quick estimates.
Zillow.com, for instance, relies on publicly recorded sales and mortgage documents from nearby and similar homes, among other things, to determine value.
Mortgage brokers and others emphasize that Zillow should be used only as a rough guide, because it does not consider the condition of properties that have been sold, among other factors.
Meanwhile, Trulia.com offers broader information on real estate value trends, as well as local foreclosure figures. Foreclosures can suppress selling prices and, if a property falls into disrepair, even reduce the value of surrounding homes.
Mr. Vanderwell says homeowners considering a new loan, who want to avoid the time and expense of making a formal mortgage application to determine whether they qualify, should try another route.
“Find a real estate agent who really knows the area, and ask them to come out and take a look at the house,” he said. “Tell them they’re not thinking of selling it, but want an idea of what it would appraise at.”
If the agent’s informal appraisal is close enough to the figure you would need to qualify for a refinanced loan or a second mortgage, Mr. Vanderwell said, it is worth applying. If it is significantly below, you are better off waiting for conditions to improve.
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